New Delhi: India’s trade minister said on Tuesday monetary policy may not be the right tool to fight high food inflation, in a strong political signal against a rate hike in next week’s central bank policy review.
In a letter written to finance minister Pranab Mukherjee, union trade minister Anand Sharma also said a selective restriction on credit may be necessary to check inflationary pressures.
India battled double-digit inflation through most of 2010, the highest rate of any major Asian economy. Spiralling food and fuel prices have damaged voter confidence in the government and highlighted stresses in the multi-party ruling coalition.
Although Asia’s third-largest economy made a faster than expected recovery from the global financial crisis, it has had to balance between growth and tightening rates to combat inflation.
“The high inflation in primary articles, particularly vegetables is more on account of supply side constraints and monetary policy may not be the most suitable intervention to deal with the situation,” Sharma said in the letter.
Highlighting the political challenge before the government, hundreds of opposition supporters protested against the spiralling food and fuel prices near India’s parliament on Tuesday.
India’s headline inflation rose an annual 8.43% in December on higher food prices, cementing expectations of a rate increase by the central bank next week to cool prices.
The Reserve Bank of India is expected to raise key rates by at least 25 basis points in its 25 January review to squeeze inflation to its projected level of5.5 % by March.